Greek prime minister Alexis Tsipras is applauded by lawmakers before addressing his parliamentary group meeting at the Greek Parliament in Athens AFP

Greece seemed to be on course to seal a historic rescue deal with its creditors which will keep the country from crashing out of the single currency.

Europe’s most senior leaders made positive noises throughout the day about the latest economic reform proposals submitted by Athens late on 9 July and financial markets soared on expectations of an imminent deal.

The Greek plan will go before a meeting of eurozone finance ministers in Brussels on 11 July for approval. If the plan is accepted Athens is expected to receive a new three-year bailout package from the eurozone and the International Monetary Fund, worth more than €50bn (£36bn). The deal would also enable the country’s banking system to survive.

That would represent a stunning turnaround from the dire situation on 13 July after the Greek population voted overwhelmingly to reject the reform demands of its creditors and it looked likely that the country would be forced out of the euro within a matter of days.

In pictures: Greek referendum

In pictures: Greek referendum

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People celebrate in Athens after the first exit-polls of the Greek referendum

Getty Images

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A "No" supporter flashes a victory sign before a Greek flag atop the parliament in Athens, Greece July 5, 2015.Greeks voted overwhelmingly "No" on Sunday in a historic bailout referendum, partial results showed, defying warnings from across Europe that rejecting new austerity terms for fresh financial aid would set their country on a path out of the euro.

REUTERS/Yannis Behrakis

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Supporters of the No vote react after the first results of the referendum at Syntagma square in Athens

AP

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Supporters of the No vote wave Greek flags after the referendum's exit polls at Syntagma square in Athens

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A ballot box is emptied by a voting official at the closing of polling stations in Athens, Greece July 5, 2015. Greece voted on Sunday on whether to accept more austerity in exchange for international aid, in a high-stakes referendum likely to determine whether it leaves the euro-currency area after seven years of economic pain.

REUTERS/Marko Djurica

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A photographer photographs a man waiting to vote in the referendum at a school in the suburbs of Athens

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Greek voters are being asked to choose between backing their creditor's austerity measures or rejecting them

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Tourists walk past posters with slogans that read “OXI“ (NO) and “NAI“ (YES) ahead of the referendum in Athens

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Opposition parties to Syriza, including the centre-right New Democracy, are campaigning for a ‘Yes’ vote in the referendum

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Protesters on both sides of the argument ('No' pictured here) have rallied in Athens

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Greek Prime Minister Alexis Tsipras has been branded reckless and a feckless liar by EU leaders

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According to polls which surveyed some 1000 people across the country, 41.5 percent of Greeks would support the new bailout measures to avoid an exit from the Eurozone

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Despite Tsipras's assurances, many Greek people are not certain whether Sunday’s referendum is a vote on whether Greece will remain in the euro or not

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The Greek and EU flags flutter in front of the ancient Acropolis hill in Athens. The Greek people have been called upon to show “calm and national unity”

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Greece’s Prime Minister Alexis Tsipras gave a televised address to the nation ahead of the vote. He has called on voters to reject creditors’ proposals for more austerity in return for rescue loans

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Protesters march holding a torn European Union flag during a demonstration for the 'NO' campaign in Thessaloniki

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Greek Finance minister Yanis Varoufakis has pledged to resign if his country votes “yes” to the bailout plan

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Pensioner wait to get their pensions outside a National Bank of Greece branch in central Athens. Banks only opened for pensioners to allow them to get their pensions, with a limit of 120 euros.

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Protesters attend an anti-austerity pro-government rally in front of the parliament building

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The possibility of Greece leaving the Eurozone is increasing by the day. Merchandise already exists to accompany the event

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An elderly man waits to receive his pension outside the closed National Bank of Greece headquarters in Athens

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People stand in a queue to use an ATM outside a closed bank in Athens

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A banner supporting the NO vote in the upcoming referendum hangs from the offices of the Greek Finance Ministry

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Greeks will be asked whether they accept the austerity terms demanded by the country's creditors

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Eurozone finance ministers expressed disappointment at the Greek decision to hold a referendum on the bailout terms

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Alexis Tsipras, the Greek Prime Minister, said bailout conditions had ‘asphyxiated’ his country

EPA

Despite the popular rejection of the creditors’ reform proposals, the document that has been submitted by Athens is remarkably similar, prompting many to conclude the Prime Minister, Alexis Tsipras, has effectively executed a huge U-turn to avoid a catastrophic “Grexit”.

The President of the Eurogroup, Jeroen Dijsselbloem, said the Greek reform paper was “a thorough text”. The French President, François Hollande, called it “serious and credible” and added: “The Greeks have just showed their determination to stay within the eurozone.” Meanwhile the US Treasury Secretary Jack Lew, who has been putting heavy pressure on Europe to resolve the Greek crisis, noted that the two sides seemed to be moving closer to a deal.

However, Angela Merkel, the German Chancellor, kept her counsel on the Greek plan and the International Monetary Fund, whose support will also be needed to secure a deal, did not comment, raising the possibility that Greece may yet be forced from the single currency.

Another potential stumbling bloc is that the Greek proposal needs to be unanimously approved by all 19 Eurogroup members and there were indications that some smaller nations of the single currency will be very difficult to win round. The Lithuanian President, Dalia Grybauskaite, said the Greek proposals were based on outdated economic data and the proposals “will not be enough”. The Latvian President Laimdota Straujuma also poured cold water on the Greek paper. Slovakia’s Finance Minister, Peter Kazimir, said: “Listening to Greek government officials, one can wonder how quickly can a caterpillar turn into a butterfly.”

Seven eurozone governments – Germany, the Netherlands, Finland, Austria, Slovakia, Latvia and Estonia – will need to hold parliamentary votes to approve talks on a third Greek bailout. Last night the Greek parliament was voting on whether to accept the plans, with expectations of revolts from the left wing of Mr Tsipras’s Syriza party in response to the change of tack.

Finance ministers in Brussels will be given an assessment of the Greek plan this afternoon by the European Central Bank, the IMF and the European Commission. They will then decide whether the proposal is a sufficient basis to start formal negotiations on a new bailout. If there is no agreement a summit of eurozone leaders will be held tomorrow, followed a full summit of all 28 EU members later to prepare for an eventual Greek exit from the euro.

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Greece’s reform proposals – drafted with the help of French finance officials – offer €4bn more in cuts than originally sought by the creditors last month when they were seeking an extension of the second bailout. To secure a fresh three-year bailout, Athens has agreed, amongst other reforms, to higher taxes on shipping companies; 23 per cent VAT on restaurants and catering; military spending cuts of €100m this year and €200m in 2016; pension reforms worth 1 per cent of GDP in 2016; and a new, autonomous tax revenue agency.

Mr Tsipras described the proposals as part of the wider effort to reform the Greek economy and public administration “through fighting corruption, clientilism and inefficiency, promoting social justice and creating a positive environment for sustainable economic growth”.

Timeline: What happens next?

11 July: Eurogroup finance ministers meet in Brussels at 3pm UK time. Assessments of the Greek proposals by the European Commission, the IMF and the European Central Bank will be presented. The Greek proposals need unanimous support of all 19 in Eurogroup for talks to begin. If they are given the thumbs down, EU leaders will gather tomorrow to plan for Greece’s exit from the single currency.

12 July: Eurozone leaders’ summit begins at 3pm. If this goes well, the planned EU summit for all 28 members, scheduled for 5pm, may be cancelled.

13 July: If there is no deal, then ECB could turn off emergency liquidity assistance to Greece’s banks. If there is a deal, six eurozone parliaments must approve reopening of bailout talks by the end of 14 July: Germany, the Netherlands, Finland, Austria, Slovakia and Estonia – most of which are no fans of Greece.

20 July: Greece is due to repay €3.5bn (£2.5bn) to the ECB. This is the key date: if missed, it will be politically impossible for the bank to continue emergency liquidity assistance to Greek banks. That would mean value of Greek government bonds collapses and the country’s banks would become insolvent.

Q&A: Greek relief

Q | What’s in the latest Greek plan?

A | Greece has pledged to cut national expenditure on pensions, to raise VAT rates and to cut defence spending. Privatisation of state assets will restart. Alexis Tsipras’s government has also agreed to run a primary budget surplus (before debt interest payments) for the foreseeable future.

Q | How is that different to the creditors’ plan rejected in the referendum?

A | The truth is it’s very similar. On VAT the new proposal from Athens is to raise a full 1 per cent of GDP every year. In the original proposal from creditors the target was 0.93 per cent. Greece has also agreed to remove the VAT exemption on holiday islands. On pensions, the Greek government says it will make savings of 0.25 to 0.5 per cent of GDP in 2015 and 1 per cent in 2016 and will phase out a “solidarity grant” for poorer pensioners by December 2019. Again, that’s pretty much what the creditors demanded last month. But because the Greek budget deficit will have deteriorated drastically in the past two weeks, running a budget surplus implies imposing more austerity than it did in late June.

Q | What are the Greeks getting in return?

A | The creditors are looking at a third bailout package for Greece worth €70bn (£50bn) over three years. This would be on top of the €240bn in assistance already received from the eurozone and the International Monetary Fund. Creditors are also planning a large debt relief programme for Athens, where the debt to GDP ratio currently stands at more than 170 per cent. Greece will also get a review of its primary surplus targets in light of the country’s economic deterioration – in other words, an easing of austerity in the medium term.

Q | How has that offer from creditors changed?

A | Their last offer was merely to release some €15bn of cash – barely enough to see Athens through this summer. The creditors say that debt relief was always on the table provided Greece dutifully implemented the promised economic reforms. But now the offer is explicit, thanks to recent pressure from the IMF and the White House.